The government’s disinvestment programme received a boost after institutional investors lapped up the 396 million share issue by state-owned iron ore miner NMDC on Wednesday. The offer for sale, which witnessed active participation by foreign and domestic institutional investors (FIIs), helped the government raise Rs 5,900 crore with the issue getting subscribed 1.7 times.

While state-owned institutions also participated in the issue, the bids by foreign institutions made the difference, bankers said. The previous two offer for sales-- Oil and Natural Gas Corporation and Hindustan Copper-- had to be rescued by state run banks and Life Insurance Corporation (LIC) in the absence of foreign institutional participation.

Attractive pricing of the issue helped the government cruise through, said bankers and brokers. The government was selling 10 per cent of its stake in NMDC at a floor price of Rs147 against the stock price of Rs159 on Tuesday. The issue received bids for 686.9 million shares at an indicative price of Rs149.23 per share.

"There was no doubt about demand for NMDC. The issue was marketed at a substantial discount based on its EV/EBITDA (Enterprise value/ Earnings Before Interest, Taxes, Depreciation and Amortization)," Deven Choksey, managing director of K R CHoksey Shares and Securities. EV/EBITDA is a ratio used to determine value of a company.

Choksey said NMDC's EV/EBITDA is around 11.5 times and it was marketed at around 3.5 times by the government. This ensured high FII participation. "Global peers of NMDC have an average EV/EBITDA of around 6-7 times," Choksey said.
Bankers said most top FIIs had bid for almost 30 percent of the NMDC share sale today, while LIC (LIC) had put in applications for Rs 700-Rs 800 crore. Brokers said, even retail participants bid for around 10 per cent of the issue. NMDC share price today closed at Rs 154.25, down 3.17 per cent from its previous close.

The successful offer for sale of NMDC has helped the government increase its divestment sale kitty to Rs12,600 with the previous two issues helping it raise Rs6,700 crore. Brokers said attractive pricing of the issues will help the government reach its disinvestment target of Rs30,000 crore by March 31 with ease.

NMDC had kept one-fourth of the issue reserved for mutual funds and insurance companies. However, no single bidder, other than mutual funds and insurance firms, would be allocated more than 25 per cent of the total offer, the iron ore miner had said in an exchange notification earlier.
The issue was subscribed by around 30 per cent till 2:30 p.m. and majority of the bids came in the last hour of the trading session.

"After today's OFS, NMDC's free float will increase to 20 per cent per cent and the company will have largest market capitalization in the Indian metals and mining sector. Market analysts say, the stock is the most likely candidate to enter the benchmark equity index Sensex of BSE and S&P CNX Nifty of the National Stock Exchange," Mumbai-based Motilal Oswal Financial Services said in its report dated December 11.

Motilal Oswal has set a price targed of Rs 192 and said it is better placed than Coal India to realize the full potential of its assets. NMDC has a strong balance sheet with cash surplus of Rs 22,500 crore and is well positioned to further step up dividend payout, despite Rs 15,500 crore capex for setting up the 3mtpa steel plant at Nagarnar, Chhattisgarh, the Motilal Oswal said.